Human capital migration networks and stock returns

Abstract Controlling for firm characteristics and risk, we find that inter‐firm human capital migration network centrality (HCMNC) is a strong predictor of future stock returns. Using publicly available employee profiles, we show that a portfolio based on HCMNC yields an annualized four‐factor alpha of 5.5%. The predictive power of HCMNC is stronger for firms with lower investor attention and higher valuation uncertainty. HCMNC also correlates with higher future operating performance and profitability, suggesting that the market underreacts to HCMNC.